Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the EverQuote Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the conference over to Brinlea Johnson from The Blueshirt Group. Please go ahead.

Thank you. Good afternoon, and welcome to EverQuote's second quarter 2024 earnings call. We'll be discussing the results announced in our press release issued today after the market closed. With me on the call this afternoon is Jayme Mendal, EverQuote's Chief Executive Officer; and Joseph Sanborn, Chief Financial Officer of EverQuote. During the call, we will make statements related to our business that may be considered forward-looking statements under federal securities laws, including statements concerning our financial guidance for the third quarter of 2024. Forward-looking statements may be identified with words and phrases such as we expect, we believe, we intend, we anticipate, we plan, may, upcoming and similar words and phrases. These statements reflect our views only as of today and should not be considered views as of any subsequent date. We specifically disclaim any obligation to update or revise these forward-looking statements, except as required by law. Forward-looking statements are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of those risks and uncertainties, please refer to our SEC filings, including our annual report on Form 10-K and our quarterly reports on Form 10-Q on file with the Securities and Exchange Commission and available on the Investor Relations section of our website. Finally, during the course of today's call, we refer to certain non-GAAP financial measures which we believe are helpful to investors. A reconciliation of GAAP to non-GAAP measures was included in the press release we issued after the close of the market today, which is available on the Investor Relations section of our website. And with that, I'll turn it over to Jayme.

Thank you, Brinlea, and thank you all for joining us today. EverQuote continued to build momentum in the second quarter. Operating results once again exceeded the high end of our guidance range for revenue, VMM and adjusted EBITDA, and we achieved new record levels across all three of these financial metrics, along with record EBITDA and net income. In April, I shared our perspective that after years of volatility in the auto insurance market, we believe that a sustainable auto recovery was indeed underway. This view further solidified as we progressed through the second quarter. Auto carrier underwriting profitability remained healthy and carriers continued to reactivate campaigns, restore budgets, and reopen their state footprints in our marketplace. As the auto carrier recovery unfolds, our team continues to execute very well. In the second quarter, we not only worked closely with carriers to help them re-enter the marketplace effectively, but we also grew demand from local agents who are a core and differentiated component of our distribution. Our customer acquisition teams continue to optimize effectively into a dynamic demand environment, and our home vertical grew to new record high levels of revenue and VMM. Turning to the back part of the year, we will continue to support carriers and agents as they restore greater focus on growth. We will do so by providing them the guidance, data, and tools they need to effectively scale spending in our marketplace and by expanding our customer acquisition and channels that will benefit from growing provider demand and monetization. Additionally, we have been actively preparing to comply with a regulatory change imposed by a new FCC rule related to consent collected under the TCPA or the Telephonic Consumer Protection Act, which goes into effect in January of 2025. This rule will affect website consent collection requirements and distribution channels that rely on telephonic outreach, most notably our agent channel. We are working closely with carriers and others to comply with the new rule while continuing to support our customers' needs for growth. We believe the change presents an opportunity for EverQuote to improve traffic quality for our customers, accelerate execution of our strategy, and extend our market leadership position as our scale enables us to process regulatory change more effectively than others. Lastly, we are maintaining heightened discipline in our expense management and making significant progress in simplifying and streamlining our tech platforms to enable more efficient and effective execution. As we begin to shift back to a more investment-oriented mindset, we will ensure that top-line progress continues to contribute to growing operating leverage. In closing, I'd like to thank the EverQuote team for another strong performance in Q2. I'll now turn the call over to Joseph to discuss our financial results.

Thank you, Jayme, and thank you all for joining. I will start by discussing our financial results for the second quarter of 2024 before providing an update on what we are currently seeing in the auto insurance sector and our guidance for the third quarter. Our strong momentum in Q1 continued into Q2 as we exceeded guidance across all three of our primary financial metrics, total revenue, variable marketing margin (VMM), and adjusted EBITDA. We produced a record level of net income, as well as a record level of adjusted EBITDA and operating cash flow. These impressive financial results were due to continued strong execution from our operating teams against an improving auto carrier landscape. As a result of the realignment of our cost structure last year and our continued disciplined expense management, we are driving significant operating leverage as we scale. Total revenues in the second quarter were $117.1 million, up 72% from the prior year period. Revenue growth was driven by stronger enterprise carrier spend, which increased 42% sequentially and over three times from the comparable period last year. Revenue from our auto insurance vertical was $102.6 million in Q2, up approximately 106% year-over-year and sequentially 32%. Revenue from our home and renters insurance vertical was $13.9 million in Q2, up 29% year-over-year and sequentially 9%. Our strong outperformance in the quarter relative to guidance was primarily driven by carriers continuing to gain confidence in their underwriting profitability as we progressed through the quarter. This resulted in carriers increasing their marketing spend during the period, often with minimal advance notice. VMM was $36.5 million for the second quarter, up approximately 48% from the prior year period. As expected, VMM decreased as a percentage of revenues in the quarter to 31%. Looking ahead to the remainder of the year, given the more competitive advertising environment as well as the impact of preparing for the upcoming regulatory changes, we expect downward pressure on VMM percentage, which is reflected in our guidance. Turning to operating expenses and the bottom line, we continue to be disciplined in managing expenses and driving incremental efficiency across our operations, which is resulting in expanding operating leverage as we scale and drive top-line growth. Cash operating expenses, which exclude advertising spend and certain non-cash and other one-time charges, were in line with expectations in the second quarter at $23.5 million and decreased 12% from the same period in 2023. Looking to the remainder of this year, we plan to continue to judiciously invest in what we view as compelling high ROI opportunities, including advancing and streamlining our technology platforms and expanding our product offerings for our insurance provider partners. In the second quarter, we reported record net income of $6.4 million. Adjusted EBITDA was $12.9 million in Q2, up 70% sequentially and an improvement from a loss of $2.1 million in the prior year period. Adjusted EBITDA as a percentage of revenues grew to 11% in the quarter as we continued to benefit from the rapid increase in auto carrier recovery and our strong operating leverage. This, coupled with our tight expense discipline, led to VMM overperformance flowing through to adjusted EBITDA. Looking ahead, we remain steadfast in our commitment to efficient operations while making calculated investments to position the company for long-term growth. As a result, as we progress through the remaining half of the year, we expect adjusted EBITDA margins to remain at or near Q2 levels. We delivered operating cash flow of $12.4 million for the second quarter, ending the period with cash and cash equivalents of $60.9 million, up from $48.6 million at the end of the first quarter of 2024. To note, going forward, adjusted EBITDA will continue to be a close proxy for operating cash flow, subject to normal working capital adjustments. Before turning to guidance, I want to provide an update on our current outlook for the auto insurance industry for the remainder of 2024. During Q1, we shared that several of our carrier partners had recently reiterated their prior comments to us about wanting to return to acquiring new consumers during the course of 2024. Most recently, we are pleased to see this more growth-oriented mindset taking hold with many carriers, which has led to a strong start in the first half of the year and good momentum continuing into Q3. We, however, remain cognizant that there is no single playbook for how each one of our carrier partners will emerge from the multi-year auto insurance downturn. In Q2, for example, we experienced some unexpected changes from carriers, both favorable and unfavorable as we progressed through the period. We expect this unpredictability to persist in the near term and are prepared to adapt our operations accordingly as carriers work to rebuild their growth muscle and adapt their marketing spend to a dynamic and competitive environment. Turning to guidance. For the third quarter of 2024, we expect revenue to be between $137 million and $143 million, we expect VMM to be between $38.5 million and $41.5 million, and we expect adjusted EBITDA to be between $14 million and $17 million. In summary, we have had a very strong start to 2024 and continue to execute and capitalize on the improving auto carrier landscape. Our record results in Q2 for revenue, VMM and adjusted EBITDA are evidence that a strategic focus on driving operational improvements, maintaining disciplined expense management, and emerging from the auto insurance downturn as a stronger company is working. Jayme and I will now take your questions.

Thank you. We will now begin the question-and-answer session. Thank you. Your first question comes from the line of Cory Carpenter with JP Morgan. Please go ahead.

Good afternoon. So last quarter, you guided to a potential sequential decline in auto revenue in 3Q. Clearly, you are no longer expecting that. I guess my question is, what has changed since then? Has it been a greater breadth of carriers? Has it been the opening of new states? I know you were cautious around the second wave and the new state openings, or was it more of the first wave carriers continuing to ramp above their historic spend? I'll stop there and then I do have a quick follow-up.

Sure. Thanks, Cory. I think we guided with the information we had at the time, and this time last quarter. What we've seen subsequently is that we just continue to see encouraging data out of the carriers. Their underwriting profitability, particularly their loss ratios and the underlying combined ratios, are steadily improving. As that happens, the carriers have continued to reactivate campaigns, restore budgets, and reopen the state footprints in the marketplace. And while there is, as you know, heavy concentration in one major carrier, the recovery is more broad-based than that. So, we've seen positive developments not just from that one carrier, but from a number of carriers since the time we guided last quarter. From where we sit today, we see the actions taken thus far as being sustainable as long as the underwriting profitability holds. We also see some upside over time because there are certain carriers that have historically been meaningful spenders in the marketplace who are not yet back to spending the way they used to. There are also certain states that have been challenged and probably will remain so for a bit, but will eventually come back online, such as California. In summary, it's a little bit of everything contributing, and we expect it to continue to develop favorably from here.

I think I'd add, Cory, when we give our guidance, it's based on what we know at the time. We've certainly had favorable developments, as Jayme highlighted. I also would reiterate the comments that were in our prepared remarks around just it's an unpredictable environment. We're seeing carriers making adjustments within the quarter. You saw this in this quarter we started in Q1; as carriers progressed through the quarter, they are actually making decisions to incrementally spend based on their assessment of underwriting profitability improving. They're often doing this with little notice. That was a dynamic that came in and allowed us to outperform in the second half of the quarter and resulted in us exceeding expectations meaningfully. We're seeing that dynamic and we factored it into our guidance as we look at Q3.

Thank you. And just to follow up, I wanted to go back to the FCC regulatory change, Jayme, you mentioned. Could you talk a bit more about that? And then, Joseph, any way to kind of frame how big of an impact this could have on the business next year? Thank you.

Sure. I'll try to provide a bit of an overview, and then Joseph, I'll kick it back to you for the impact. At a high level, for those who are less familiar with it, in January, the FCC published new rules that amend consent requirements under the TCPA, which is the Telephonic Consumer Protection Act, to require one-to-one consent for outbound telemarketing calls or texts made using certain regulated technologies. This goes into effect on January 27th of next year. Since then, we've been working with legal experts, our clients, and others in the industry to understand the requirements, interpret them, and put a plan in place to comply with them. Of course, we are fully committed to compliance and are working with our customers to do so. So, what does this all mean? Just to put it in context, the part of our business that it affects is the part that relies on telephonic outreach to consumers. Consider that this is about 25% to 30% of the business that will be affected by the change. Now, what will that effect be? From our point of view, it's a very healthy development for the industry. This requirement of one-to-one consent gives consumers more control over how they receive quotes. This will result in some consumers opting into fewer provider options, leading to fewer leads being available to sell to insurers. However, it will alleviate a consumer pain point regarding the number of phone calls they receive. Importantly, it will improve the quality of the lead product. Our data shows that one-to-one consent will improve the performance of the leads sent to agents. As a result, agents will be willing to pay more for what will ultimately be a better product. In sum, we expect slightly fewer leads but at higher prices. We believe we'll be able to manage through it effectively and come out the other side in a strong position.

Just to add a bit more context, Cory, to emphasize a few points. This change mainly impacts our leads business, which is primarily our agent business. We really don't anticipate much of an impact on our clicks business, which is the direct carrier enterprise side. The expectation here is for lower volumes of consumers coming through this process, but they will likely be higher quality. Therefore, providers will have an opportunity for higher monetization. As we prepare for one-to-one consent, we are making investments in the current period, which affects VMM margin and performance, but our plan is to continue these efforts into Q4 as we prepare for the start of next year.

Thank you both.

Thanks, Cory.

Your next question comes from the line of Jed Kelly with Oppenheimer. Please go ahead.

Hey, great. Thanks for taking my question. Just one quick question. Jayme, you mentioned local agents as a source of differentiation. I know a lot of the other marketplaces are seeing pretty good revenue growth, so can you just touch on that? And then Joseph, you generated a very healthy free cash flow this quarter. Can you talk about how you're thinking about returning capital or capital deployment, as you guys sort of inflect to a much larger free cash flow base? Thank you.

Thanks, Jed. Yes. With respect to the agent business, we've always viewed the agents as a differentiated part of our distribution. We continue to invest in delivering better performing products and expanded offerings into that agent base. We had great performance this past quarter, and that business continues to grow year-over-year and sequentially. Our focus right now with agents is enhancing the products we offer and expanding our offerings to address their growth needs, especially in a world where lead volumes might decline a bit. I think our focus here will be instrumental in building on the advantage we have with agents. We have a compelling roadmap that we will be rolling out over the next couple of years, which will help us build on the strength of these agent relationships and continue to grow our agent business.

Maybe I'll touch on the use of cash. We're pleased with the turnaround of the business resulting in positive cash flow. We had record cash flow this quarter, and we expect to continue generating cash going forward. As we look to grow the business over time, we've talked about coming out of this with a stronger leadership position based on our strategic moves. We may consider potential M&A selectively in areas that could accelerate our current organic plans. We're also seeing opportunities in the private markets, given the dislocation in some private capital markets, which could offer favorable terms for quality private insurer technology firms. However, we will remain disciplined and ensure that any acquisitions align with our P&C focus, top-line growth, and return on investment as measured by free cash flow. We feel very good about our long-term strategy, and we don't see M&A as a requirement to achieve our long-term goals, but rather an additional lever we can consider.

Thank you. Very helpful.

Thanks, Jed.

Your next question comes from the line of Ralph Schackart with William Blair. Please go ahead.

Hi. Good afternoon. Thanks for taking the question. Just in terms of the VMM margin, I guess being at sort of the lower range contemplated, is that more of a temporary issue as you sort of work through some of the regulatory changes, maybe some pricing on search, or is that something that would be contemplated perhaps on a longer-term basis? And then maybe just kind of a follow-up on the previous question. You talked about seeing strong performance from local agents also in the quarter, along with the recovery that's continuing. So just curious what you're seeing, perhaps more specifically from local agents in the quarter, that's also contributing to strong performance. Thank you.

Sure. Thanks, Ralph. In terms of the VMM margin, to provide context, we started the year signaling that VMM margin would come down from last year as we had auto carrier recovery, leading to a more competitive environment. In Q1, we said we would come in a little under 30 points, exactly where we landed. This quarter, we said we would come in around 31%, which is where we've landed. We thought we would be in that range for the year initially. We manage this because we believe the competition in advertisement is increasing, and some of that is part of the quickly returning growth. There is also the work we're doing to prepare for FCC regulations. Longer-term, we believe there are opportunities to build our VMM margin back up. Short-term, we're aware of these dynamics affecting us. However, we do aim to build on our data advantage, which will be important in the long term.

Regarding the second question, Ralph, there are a few factors contributing to the strong performance of the agent business. First, we're seeing the beginning of recovery from some of the agent-based carriers. This includes changes made by carriers regarding their financial support for agents, such as subsidy programs and incentive structures. These changes are encouraging agents to respond positively. Second, we continue to enhance our products sent to agents. We have consistently invested in quality, and that has been well received by our agent base. Finally, our teams are executing effectively, which is resulting in growth.

Great. Thanks, Jayme. Thanks, Joseph.

Thanks, Ralph.

Thank you, Ralph.

Your next question comes from the line of Michael Graham with Canaccord Genuity. Please go ahead.

Hi, thank you, and congratulations on the progress. I'm curious about your outlook for the second half of the year. You mentioned that some carriers have resumed operations while others have not yet. I would appreciate any insights you can share regarding your Q3 guidance and your expectations for how the year might conclude. Additionally, related to Jed's earlier question, I'd like to know your thoughts on EBITDA margins as revenue begins to increase. You achieved strong incremental profitability with an 11% margin this past quarter, but your guidance for Q3 is lower than that. I want to understand your perspective on what the business might generate in terms of EBITDA.

Thanks, Mike. I'll start with the visibility into the back part of the year. We are, as I mentioned earlier, seeing healthy and improving underwriting profitability in auto. Thus far, the gains we have made appear to be sustainable. We do see additional upside going forward. However, we do not contemplate significant additional upside beyond that. That being said, we continue to operate with discipline, as we have experienced unpredictability in these recoveries before and are aware of cat losses as we are in hurricane season. Therefore, we will continue to operate with caution moving forward.

To give you a little sense of the second half of the year, we see positive dynamics across the auto carrier recovery. However, we do emphasize that there is still uncertainty. We expect additional movement from carriers and states that are lagging to occur in 2025. While we have solid momentum going into the second half of the year, we're cognizant of the unpredictable nature of this environment. Seasonal trends suggest we typically see a high single digit decrease when transitioning from Q3 to Q4. Regulatory preparations will also contribute to changes in our performance. Our guidance reflects everything we know now. In terms of EBITDA margins, we started signaling that we would return to pre-downturn margins. We've achieved that and moved beyond in Q1. Our guidance reflects stable margins around the high 10% range. Should we see strong performance, we may exceed those targets depending on the dynamics of carrier reactions in the marketplace. Our long-term goal remains 20-plus percent EBITDA margins.

That's really helpful. Thanks a lot, Joseph and Jayme. Thank you.

Thank you, Mike.

Your next question comes from the line of Zach Cummins with B. Riley Securities. Please go ahead.

Hi. Good afternoon. Congrats on the quarter, and thanks for taking my questions. So, first question for me is just in terms of carriers that haven't ramped up spending yet. Do you get any feedback about why they haven't at least started to dip their toes in terms of renewing some of these budgets and their timeline expectations for when they'll be more meaningfully involved in acquiring new customers? My follow-up question is, away from the automotive side, just curious what is driving the strong performance we're seeing in the home and renters insurance business and what expectations we should be modeling moving forward?

Thanks, Zach. Regarding carriers that have yet to reactivate or ramp, it typically comes down to one or two reasons. The first reason is underwriting health; they need to feel confident enough to ramp spend. The second reason is related to staffing and resourcing issues. For instance, one major carrier reduced staffing in their marketing department, which limits their ability to manage increased spend through our channel. We believe these issues will resolve between now and the end of the year, but we don't know the exact timeline. Moving to the home vertical, we've reported another record quarter for both revenue and VMM, even with the challenges that carriers are facing due to elevated cat losses. We believe we are well positioned and have a good understanding of the home marketplace. However, we need to see carriers sort through their home underwriting before we can see significant upside.

Got it. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

Thank you, Zach.

Your next question comes from the line of Greg Peters with Raymond James. Please go ahead.

Hey, good afternoon. This is Sid on for Greg. Just based on your results year-to-date and your guidance, could you comment if it's correct to believe you're gaining wallet share from the carriers who have increased their growth appetite, or are you seeing an increase in willingness to spend on your platform compared to the pre-downturn?

Yes. We're certainly seeing an increased willingness to spend. We are a leading digital P&C insurance marketplace, and there is a lot of change happening quickly within the industry. Many companies are taking advantage of the market recovery, and we believe our execution is strong. While it can be difficult to measure from one period to another, data from our carriers indicates that we have gained share in recent months.

Okay, thank you.

Thanks, Sid.

Your next question comes from the line of Jason Kreyer with Craig-Hallum. Please go ahead.

Great. Thank you. You mentioned a few times the variability in recovery in some states. Could you provide an updated perspective on some of the larger states, where rate adequacy has been challenged? Do you have any insights into when that may start to straighten out?

Yes. The largest states that tend to be challenged include California, New York, New Jersey, and Michigan, to some extent. California is the biggest issue, with most carriers expecting to return to adequate rates in 2025. We're starting to see some movement in New York, which could occur sooner. However, we expect California to be the last state to see significant improvements, likely only in 2025.

Thank you. You indicated that the recovery in Q2 became broader across carriers. Can you provide additional detail regarding that? Specifically, how would you characterize your carrier partners—what is the mix regarding those in solid recovery versus those still in the early stages?

It's an interesting question. If you benchmark against historical levels of spend, I would say the majority of carriers are still in the early to mid-stages of recovery. There is obviously one major carrier that we would characterize as being in later stages of recovery, but most are still earlier to mid-stages.

Got it. Thank you.

Thanks, Jason.

Your next question comes from the line of Mayank Tandon with Needham & Company. Please go ahead.

Thank you. Good evening, Jayme and Joseph. Jayme, can you share any insights into the buying rates or conversion rates or the ROI on the marketing spend by carriers? How has that changed over time? Has it increased enticing them to come back for even more spend? I'm just trying to gauge the share shift in the market relative to your competition.

Yes, the bind rate of our traffic is critical, and we invest heavily into improving it. We believe we have a substantial data advantage in this area. As one of the largest marketplaces, we process an extensive amount of data, providing valuable feedback to our carriers regarding performance. We're seeing meaningful improvements in conversion rates as we emphasize quality and performance. We plan to continue differentiating ourselves through better quality traffic and ongoing investments in our data and analytics.

Got it. That's helpful. Looking longer-term, do you anticipate future spend will be driven more by new carriers coming onto your platform or by existing carriers increasing their marketing spend? You already have many major carriers on your platform and with the data analytics advantage you mentioned, which path will contribute more to your growth?

The answer is likely a bit of both. We strongly believe there's a growing marketing budget trend flowing from upper-funnel channels into lower-funnel channels, because our platform generates better performance compared to nearly any other channel. The targetable consumer attributes we collect enhances precision in targeting. Therefore, we expect existing customers to continue this trend. Concurrently, we’re seeing many new digital-native insurance companies enter the market who often start by identifying gaps and initially focusing on digital channels. Some of our largest spenders today are these newer companies, which have been around less than a decade. We anticipate this trend to grow in the future as these startups recognize the advantages of targeting insurance risk through our channel.

That's great color. Thank you so much, and congrats on the quarter.

And that concludes our question-and-answer session. I will now turn the conference back over to management for closing remarks.

All right. Well, thank you all for joining us today. To close, I'd like to take a moment to really zoom out and reemphasize how well our team's been executing our plan since last summer's realignment. Over the last year, we've achieved a remarkable turnaround in financial performance. This began with streamlining and refocusing around the core of our business, which is our digital P&C marketplace. It's an area where EverQuote has built a significant competitive moat, fueled by our data, technology, and the strength of our distribution and customer acquisition platforms. As a direct result of these efforts, we find ourselves well positioned to reap the benefits of the ongoing market recovery, which is leading to financial performance exceeding expectations across all metrics, and notably, record levels of profitability and cash flow. We look forward to continuing to focus on this improved backdrop as we enter the latter part of the year and begin looking ahead to 2025. Thanks again.

And this concludes today's conference call. Thank you for your participation, and you may now disconnect.